Bill Ackman Anticipates Federal Reserve Rate Cuts by Early 2024

Global financial markets are closely monitoring signals from the Federal Reserve, as discussions about interest rate policy continue to sway investor sentiment. Recent dovish comments coming from the Federal Reserve have solidified a sentiment that began to take shape in late October last year. Back then, the Fed chose to maintain interest rates, triggering skepticism around their established dot plot, which hinted at an additional rate hike.

This newfound perception has catalyzed a swift recovery in stock markets, with notable rises such as the S&P 500 escaping correction levels in an unprecedented speed mirroring that of the 1970s recovery. The possibility of reduced costs of borrowing has also contributed to a decline in the 10-year Treasury yield, which dipped under 4.30% after nearly reaching 5.00% around the time of the last Fed assembly.

Shifting Expectations

Some of the Federal Open Market Committee’s (FOMC) historically more hawkish members have now expressed a degree of comfort with stabilizing their policy stance. Fed Governor Christopher Waller recently conveyed his growing confidence in the current monetary policy position, which he believes is well-suited to temper the economy and help decrease inflation towards the 2% goal. Similarly, Governor Michelle Bowman has refrained from advocating for an immediate rate rise, contingent upon incoming data that either shows a halt in inflation progress or that it's not sufficiently decreasing toward the 2% target.

Against this backdrop, market participants are increasingly optimistic, bolstered by economic indicators such as the recent subdued inflation and employment figures. Predictions are now being made by investors about the likelihood of the central bank reducing its policy rate sometime in mid-2024. Figures like Bill Ackman of Pershing Square have taken this one step further, forecasting potential rate cuts as soon as the first quarter of 2024. The dialogue has notably pivoted from discussions of hikes to considered cuts, which has contributed to the U.S. dollar's slide towards multi-month lows reflecting the adjusted rate predictions.

Bill Ackman highlighted the consequences of declining inflation on real interest rates during an appearance on The David Rubenstein Show. He expressed concerns over the 'cliff-like' effects that could ensue as individuals and businesses refinance their debt, especially evident in the real estate sector. Ackman warned of the risk of a 'hard landing,' a significant economic downturn, if the Fed does not initiate rate cuts soon.

The Influence on Currency

Looking ahead to 2024, analysts from ING Economic and Financial Analysis predict that a weakening dollar will be a prominent story, driven largely by the Federal Reserve's actions. The path towards a weaker dollar is expected to stem from lackluster U.S. macroeconomic data. As ING anticipates a domestic economic downturn in the upcoming quarter, their projection is for EUR/USD to stabilize around the 1.05/1.06 range and USD/JPY to hover near 150 by the year's end. Into 2024, however, with the anticipation of Fed easing in the summer, they foresee the dollar declining as the short end of the U.S. yield curve moves lower.

Fed, Economy, Rates